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 Appendix VII:  Understanding Edit Checks of Tier I and Tier II Compensation
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          Labor Employer Reporting Instructions (LERI)
          Appendices
          Appendix VII:  Understanding Edit Checks of Tier I and Tier II Compensation
 Topics
    

      
              Part I - Prerequisite Knowledge for Labor Employer Reporting
          Part II - Establishment of Employee Records
          Part III - Principles of Service and Compensation
          Part IV - Particular Types of Compensation Payments
          Part V - Reports of Creditable Service and Compensation
          Part VI - Reports Related to Service and Compensation
          Part VII - Additional Communications about Service and Compensation Reports
          Part VIII - Employer Reporting System (ERS) Internet User Instructions
          Appendices
                                Appendix I: Electronic File Formats
          Appendix II:  Railroad Retirement Board Jurisdiction Referral Guide
          Appendix III: Position Description: Special Agent/National Reporting Officer
          Appendix IV:  Instructions for Form OE-1a
          Appendix V:  Instructions for Form OE-1
          Appendix VI: Earnings Bases and Tax Rates
          Appendix VII:  Understanding Edit Checks of Tier I and Tier II Compensation
          Appendix VIII:  Service and Compensation Referrals to Employers Appendix VII:  Understanding Edit Checks of Tier I and Tier II Compensation
							 
							
							
            pdf iconLERI-App. VII_Understanding Edit Checks of Tier I and Tier II Compensation (36.95 KB)
      
            **Why is there a referral "Tier II compensation appears to be under-reported" when there is no reporting instruction that Tier I and Tier II compensation must be equal?**

The Railroad Retirement Board does various reasonableness checks on the reported service and compensation data to help insure the accuracy of our records. For example, there is a check that the sum of the reported service months equals the reported service month total. Similarly, if Tier II compensation is less than the Tier II maximum, then Tier II should equal Tier I compensation. There is an exception which is discussed at the end.

Because sick pay is reported separately, all payments reported on the annual service and compensation report are taxable and creditable as both Tier I and Tier II. A single payment subject to Tier I and Tier II taxes can yield only a single amount creditable as Tier I and Tier II compensation. This applies until a payment is no longer subject to Tier II tax because the maximum has been reached.

**But what if sick pay is paid first? Won't the Tier I maximum be reached before the Tier II maximum?**

Let's look at some examples of compensation as it is paid, month by month.

**Example 1**

An employee has a 1999 salary of $60,000; is covered under a sick pay plan paying $2,000 bimonthly; and is off sick for 6 months.

**Type**
			**J**
			**F**
			**M**
			**A**
			**M**
			**J**
			**J**
			**A**
			**S**
			**O**
			**N**
			**D**
			**Total**SP
			4000
			4000
			4000
			4000
			4000
			24000T-1
			
			
			
			
			
			5000
			5000
			5000
			5000
			5000
			5000
			5000
			30000T-2
			
			
			
			
			
			5000
			5000
			5000
			5000
			5000
			5000
			5000
			30000

Neither the Tier I nor Tier II annual maximum is reached. The annual service and compensation report will show Tier I and Tier II compensation of $30,000, thus passing the edit check. The annual sick pay report will show $24, 000. The combined Tier I compensation, which does not appear on any report to the RRB, is $54,000.

**Example 2**

An employee has a 1999 salary of $84,000; is covered under a sick pay insurance plan paying 100% salary; and is off sick for 2 months.

**Type**
			**J**
			**F**
			**M**
			**A**
			**M**
			**J**
			**J**
			**A**
			**S**
			**O**
			**N**
			**D**
			**Total**SP
			7000
			7000
			
			
			
			
			
			
			
			
			
			
			14000T-1
			
			
			7000
			7000
			7000
			7000
			7000
			7000
			7000
			7000
			2600
			
			58600T-2
			
			
			7000
			7000
			7000
			7000
			7000
			7000
			7000
			4700
			
			
			53700

The employee reached both annual maximums during the year so the payments made after that point are no longer subject to the Tier tax. The annual service and compensation reported will show Tier I compensation of $58,600 and Tier II compensation of $53,700, thus passing the edit check. The annual sick pay report will show $14,000. The combined Tier I, which does not show on any report to the RR, is $72,000.

**NOTE**: If the employee worked in every month, service is credited for November and December. Since RUIA is based on monthly maximums, RUIA tax and credit would apply to all 12 months.

**Is there a situation where Tier I is less than the Tier II maximum and Tier I and Tier II are not equal?**

Yes, but the circumstances occur very rarely. In the last example, we will extend the employee'’ sick time to 3 months.



**Example 3**

**Type**
			**J**
			**F**
			**M**
			**A**
			**M**
			**J**
			**J**
			**A**
			**S**
			**O**
			**N**
			**D**
			**Total**SP
			7000
			7000
			7000
			
			
			
			
			
			
			
			
			
			21000T-1
			
			
			
			7000
			7000
			7000
			7000
			7000
			7000
			7000
			2600
			
			51600T-2
			
			
			
			7000
			7000
			7000
			7000
			7000
			7000
			7000
			4700
			
			53700

The annual service and compensation report will show Tier I compensation of $51,600 and Tier II compensation of $53,700. These amounts will fail the edit check but are correct.  What is unique about the Example 3? This employee has high earnings and high sick pay coverage and received sick pay in the early part of the year.

The specific criteria where Tier II may correctly exceed Tier I are:

Sick pay exceeds the difference between the Tier I and Tier II maximums.
	Sick pay is paid before non-sick pay earnings reach the Tier II maximum.
	Combined sick pay and other Tier I compensation exceed the Tier II maximum.
        ‹ Appendix VI: Earnings Bases and Tax Rates | 
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                      Appendix VIII:  Service and Compensation Referrals to Employers ›To view and download PDF documents, you need the free Acrobat Reader. We recommend using the latest version. Viewers with visual disabilities can go to Adobe's Access Website for tools and information that will help make PDF files accessible.Get Adobe Acrobat Reader
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 Last updated: 06/02/2017